Last week US Ag report was released.
Typically, this period report, is not a market mover.
However, having fundamentally changed the outlook for new crop corn and soybeans, prices understandably rallied due the enormous changes in corn yield and export duty announcements by the Russian government on the new crop.
Meanwhile, the major driving factor of adverse South American weather also persisting, even if there is some improvement in rainfall over Brazil, but forecasts for Argentina remain dry.
In add, we believe that the battle for new crop acres expected to keep price support under the market.
So, soybeans prices will have to stay at elevated levels to increase demand destruction or push a higher acreage in the next crop year.
A pull back in prices, could be a new buying opportunity.
The change in projected carryout in corn and soybeans will heat the new crop’s fight for acreage.
Some analysts view was that price would continue to be supported until market factors in the expected planting expansion for the new crop.
However, even the new crop carry out is looking tight with the current changes.
The market would need to see demand rationing driven by higher prices to end this bullish price move.
Untill now, we have seen funds add long in corn while reducing the long in rest of the commodities but, maybe, we could see funds adding to the long side in the coming weeks in others commodities, if fundamental pictures remain bullish.
However, given that we are close to the record longs in both corn and soybeans, we may likely see a sharp pullback in prices on profit-taking in case of bearish news.
On the grains hand, the main driver of wheat prices rally was Russia announcing that they will place an export tax on the new crop.
In the absence of large export pressure from the Black sea origin, at this moment, US wheat cameback getting competitive into the world export destinations and, this new export demand, combined with high corn prices, could continue to support wheat prices.
In addiction, persistent risk of a further rally in corn spilling over to wheat remains.
Perhaps, in fact, US Ag is largely underestimating the demand side, which, if Agency were to adjust, would lead to a much lower carry-out number.
US Corn is still competitive in the world export market, and the US likely estimated carryout would continue to reduce, acting as a support for corn prices.
The change in current crop carry out will significantly impact the new crop, where corn and soybeans will compete for acreage.
This change in fundamentals could potentially push corn prices to the $6 bu mark in the coming week/month.
There will need to see expanded acreage and near-perfect weather in the new crop to push lower from these fundamentals support.
On oilseed complex hand, again, soybean prices breached the sevenyear high last week.
US Agency, in fact, also reduced the soybean and the fundamental change in the corn balance, means that now soybean prices will have to stay at elevated levels and move more higher if soybeans are to see much-needed expanded acreage.
Instead, soybean oil prices saw a pullback, however, competing vegetable oils balance sheet is still tight, and with recent rains/floods and resulting in stocks drawdown on palm, soyoil could continue to be bullish.
Initially, for some market analysts, soybean prices leading to $14 would leaded to range bound markets.
However, now, it’s possible that soybeans can trade around $15 to $16 bu.
In fact, soybeans need to trade higher to see demand destruction and, given the prices are now closer to $14, we may see a pullback but, a pull back in prices, could be a new buying opportunity.
